Global crude oil prices rose above $110 a barrel and natural gas costs reached a new record in Europe on Wednesday as Russia's escalating military operation in Ukraine sparked fears in markets about a supply shock.
Global benchmark Brent crude futures jumped nearly 9% to $113.65 a barrel, the highest level since 2014. US oil futures were also trading higher at $112.25 a barrel, up more than 8%. In Europe, the price of bulk natural gas rose 60% to a record high of €194 ($215) per MWh. This is more than double what it was last Friday.
"The market is in panic," said Lewis Dixon, senior oil market analyst at Rystad Energy. "The initial upward reaction is only intensifying after the conflict that began six days ago in Ukraine."
Russia's energy wealth has not been directly targeted by Western sanctions imposed after the invasion of Ukraine. But it's a huge card that the United States and Europe could still play if Russia presses with its attack.
"It's still on the table, it's not off the table," White House Press Secretary Jen Psaki told CNN on Wednesday.
But he added that President Joe Biden "doesn't want to collapse global oil markets or the global market, or overwhelm the American people with high energy and gas prices."
Moscow is already finding it difficult to sell shipments of Russian crude oil to traders and refineries, who are worried the financial system may be caught in the fallout of sanctions targeted. Tanker operators are wary of the risks to ships in the Black Sea, and major global oil companies are scaling down operations in the country.
Russia's leading Urals oil grade was trading at a discount of $18 a barrel against Brent crude on Wednesday as buyers gave up on Russian exports, according to analysts at Commerzbank. Analysts said the exemption has not been so widespread since the collapse of the Soviet Union.
S&P Global Commodity Insights' Shin Kim, oil chief, said: "The gap in oil prices reflects a clear reluctance to take on Russian crude, and there remains a risk of further sanctions that may indirectly or direct oil purchases or could affect the supply." Supply and production analysis.
The massive price hike has come despite efforts by the West to calm markets, and the risk has already exacerbated global inflation. On Tuesday, the United States and 30 other members of the International Energy Agency authorized the release of 60 million barrels of emergency oil reserves that would cover nearly two weeks of Russian oil shipments.
"The basic point is that it's not enough to cool the market. It's a band-aid solution," said Michael Tran, managing director of global energy strategy at RBC Capital Markets.
A steep increase in prices will make fuel more expensive around the world, increasing travel and commuting costs. They will also add to inflation and can act as a drag on economic growth, complicating the decisions of global central banks as they try to counter rising prices.
Investors fear that Russian energy exports will be limited or halted as a result of the conflict in Ukraine - a major pipeline route, additional Western sanctions that could target the heart of Russia's economy, or retaliation by Moscow.
"Russian oil is seeing a lack of interest," said Commerzbank analysts. "It appears that the market is pricing sharply due to the reduction in Russian oil shipments," he said.
According to Alex Froley, market analyst at Independent Commodity Intelligence Services, Russian natural gas continues to flow into Europe. But "there's a lot of uncertainty and worry about how things might turn out," he said.
Frawley noted that the United Kingdom has banned Russian-owned and controlled vessels from its ports, which could disrupt shipments of liquefied natural gas from Russia which accounts for between 3% and 4% of the country's gas supply. .
"Traders may be concerned whether continental Europe imposes similar sanctions on Russian ships," he said.
OPEC on edge
The Organization of the Petroleum Exporting Countries and allied producers, including Russia, agreed on Wednesday to stick with their plan to gradually add oil to the market, defying pressure from developed economies to do more to reduce prices. Of.
The Saudi-led group called OPEC+ said in a statement it would increase production by 400,000 barrels per day in April - a tiny fraction of Russia's 10 million barrels per day crude output.
OPEC+ said, "The current oil market fundamentals and consensus on its outlook point to a well-balanced market, and the current volatility is not due to changes in market fundamentals but to current geopolitical developments." it occurs."
Nuclear talks between Iran and the United States could bring more Iranian barrels to the market, but that won't ease the situation in the near future.
Get out of russia
Many of the world's biggest oil companies are leaving Russia to explore and develop fields or are halting new investment in projects.
ExxonMobil said on Tuesday it was abandoning its last project in the country, Sakhalin-1 - which was billed as "one of the largest single international direct investments in Russia". An Exxon subsidiary was the operator of the project, and the company's decision to walk away would end its presence in Russia for more than 25 years.
BP, Shell and Norway's Equinor all said this week that they intend to exit their Russian business, which could put billions of dollars in losses on their balance sheets. France's TotalEnergies has stopped new investments.